Insurance Europe, the European insurance and reinsurance federation, has welcomed a decision by the Organisation for Economic Co-operation and Development (OECD) to exclude reinsurance from its Pillar One tax rules.
Following public consultation, the OECD concluded that regulated financial services, including reinsurance, do not qualify for additional taxation under its Pillar One rules.
These rules were developed as part of the solution for addressing the tax challenges arising from the digitalisation of the economy.
They introduce a new taxing right over a portion of the profit of large and highly profitable enterprises for jurisdictions in which goods or services are supplied or consumers are located.
But, as Insurance Europe notes, reinsurers are global companies, and it is part of their business strategy to have an effective local presence via subsidiaries and permanent establishments in relevant markets.
They also meet all the key elements of the definition for regulated financial services: namely firms have a licensing requirement, regulatory capital requirements and they undertake the required activities.
However, while praising the decision to exclude reinsurers from the tax rules, Insurance Europe did also urge the OECD to provide more clarity regarding its definitions to guide the application of rules.
“Insurance Europe expressly welcomes the fact that the consultation document continues to classify reinsurance and asset management as excluded regulated financial institutions,” the federation stated.
“Reinsurance as well as asset management are highly regulated businesses, already taxed at local jurisdiction level. There is no need for a reallocation of profits under Pillar One. Nevertheless, the consultation documents twice state that the exclusion of reinsurance and asset management does not yet have consensus in the OECD’s Inclusive Framework,” it continued.
“As the rules drafted for Pillar One should be as clear and practicable as possible, insurers wish to highlight once again the nature of reinsurance business and asset management and the reasons why these exceptions are logical and reasonable.”
